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Consider These Tax Season Moves


By: Jan Paul C. Ferrer


Looking to lower your tax burden? As April 17th approaches, here are some moves you may want to consider before you file.

Though comprehensive tax reform was passed into law late last year, most of the changes will be applied to 2018 taxes and don’t affect your 2017 tax return. With that in mind, here are some moves to consider before you fi le your return this year:

Make an IRA Contribution for 2017

It’s not too late to save for retirement and possibly generate a tax benefit for 2017 at the same time. The deadline to make a contribution to an Individual Retirement Account (IRA) for 2017 is April 17, 2018. Note the two primary types of IRAs:

(1) Traditional IRAs, to which your contributions may be tax deductible; or

(2) Roth IRAs, for potential tax-free income if certain conditions are met.1 Roth IRAs are funded with after-tax dollars.

The maximum contribution is the lesser of (a) your taxable compensation for 2017, or (b) $5,500 (or $6,500 if you are age 50 or older) for 2017. These limits apply to all your IRAs combined.2

If you’re self-employed or a small business owner, consider establishing and funding a Simplified Employee Pension Plan (SEP IRA). For 2017, the maximum contribution to a SEP IRA is $54,000, and the deadline to contribute is the due date of the federal income tax return for your business, generally April 17, 2018 for self-employed individuals.3

Consider a Roth IRA Conversion

While income limits may preclude some investors from making regular annual contributions to a Roth IRA, anyone can perform a Roth IRA conversion by rolling over eligible funds from a Traditional IRA or employer-sponsored retirement plan to a Roth IRA.

When you convert, you must pay taxes on the amount converted as ordinary income for the year of conversion distribution (or deemed distribution), except to the extent the amount converted is treated as a return of your after-tax contributions, if any.4

Subject to certain requirements, after-tax money in an employer-sponsored qualifi ed retirement plan, such as a 401(k) plan may be directly converted to a Roth IRA tax-free. Before taking any action, you should speak to the administrator of the plan and your own tax advisor.

Please note that you have until Oct. 15, 2018 to recharacterize a 2017 Roth IRA conversion distribution. This allows you to reverse or undo a Roth IRA conversion and avoid paying income taxes on the taxable amount of the conversion distribution. This recharacterization option is typically utilized if the stock market value of the account’s investments declined after the conversion. The new tax law repeals this recharacterization option for conversion distributions in 2018 or later years.5

A Roth IRA conversion may not be appropriate for everyone. 6 Consult with your tax and/or legal advisor regarding your individual situation.

Fund your Health Savings Account

If you established a Health Savings Account (HSA) in 2017, you have until tax day to contribute funds to the account to use in 2018. The funds you contribute to an HSA aren’t subject to federal income tax at the time of deposit and can accumulate and roll over year-to-year if they aren’t spent. You must be enrolled in a high-deductible health plan to be eligible to contribute to an HSA. The maximum contribution to an HSA for a family of four is $6,900 for 2018.

Review your Foreign Investments

If you have received income from international investments, you may be eligible to reclaim some or all of the foreign taxes withheld on these investments.

You can typically recoup taxes from international investments paid on investments between two and seven years in arrears, depending on which jurisdiction you invested in. Talk to your Financial Advisor about the tax-reclaim services available through one of our partners

These moves can help lessen your 2017 tax bill. Additional strategies may be available for Morgan Stanley clients. Contact a Financial Advisor or Private Wealth Advisor to determine which steps might be appropriate for you.


1 Restrictions, tax penalties and taxes may apply. For a distribution to be an income-tax-free qualified distribution, it must be made (a) on or after you reach age 59½, due to death or qualifying disability, or for a qualified first-time homebuyer purchase ($10,000 maximum), and (b) after the five tax year holding period, which begins on January 1 of the first year for which you made a regular contribution (or in which you made a conversion or rollover contribution) to any Roth IRA established for you as owner.

2 Other limitations may apply (e.g., age restrictions for traditional IRA contributions and income restrictions for Roth IRA contributions).

3 A SEP contribution for 2017 may be made through the f ling extension deadline (generally 10/15/18 for self-employed individuals), provided the client or their tax advisor has obtained an extension to file the federal income tax return for the business.

4 Determining the portion of your retirement distribution that is treated as a return of your after-tax contributions, if any, is complex, and, if the distribution is from a non- Roth IRA, you are generally required to look at all your non-Roth IRAs to make that determination (and not just the IRA from which you are taking the distribution). You should speak with your own tax advisor before taking a retirement distribution (including a conversion distribution).

5 An individual can still recharacterize a regular annual Traditional IRA contribution to a Roth IRA contribution or a regular annual Roth IRA contribution to a Traditional IRA, provided the recharacterization is done timely and complies with all the applicable requirements.

6 There are a number of factors taxpayers should consider before a Roth conversion, including (but not limited to) whether or not the cost of paying taxes today outweighs the benefit of income tax-free qualified distributions in the future. Before converting, taxpayers should consult their tax and legal advisors based on their specific facts and circumstances.


The author(s) and/or publication are neither employees of nor affiliated with Morgan Stanley Smith Barney LLC (“Morgan Stanley”). By providing this third party publication, we are not implying an affi liation, sponsorship, endorsement, approval, investigation, verification or monitoring by Morgan Stanley of any information contained in the publication.

The opinions expressed by the author(s) are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this material may not be suitable for all investors. Morgan Stanley Wealth Management (“Morgan Stanley”) recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/or as described at www.morganstanley.com/disclosures/ dol.

Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under an IRA.

Typically, a retirement plan participant, who receives an eligible rollover distribution from an employer- sponsored retirement plan has the following four options (and you may be able to engage in a combination of these options depending on your employment status, age and the availability of the particular option):

1. Cash out the account value and take a lump sum distribution from the current plan subject to mandatory 20% withholding, as well as potential taxes and a 10% penalty tax, OR continue tax deferred growth potential by doing one of the following:

2. Leave the assets in your former employer’s plan (if permitted),

3. Roll over the retirement savings into your new employer’s qualified plan, if one is available and rollovers are permitted, or

4. Roll over the retirement savings into an IRA.

Each option offers advantages and disadvantages, depending on your particular facts and circumstances (including your financial needs and your particular goals and objectives). Some of the factors you should consider when making a rollover decision include (among other things) the differences in: (1) investment options, (2) fees and expenses, (3) services, (4) penalty-free withdrawals, (5) creditor protection in bankruptcy and from legal judgments, (6) Required Minimum Distributions or “RMDs”, (7) the tax treatment of employer stock if you hold such in your current plan and (8) borrowing privileges.

The decision of which option to select is a complicated one and must take into consideration your total financial picture. To reach an informed decision, you should discuss the matter with your own independent legal and tax advisor and carefully consider and compare the differences in your options.

© 2018 Morgan Stanley Smith Barney LLC. Member SIPC. All rights reserved. CRC 2034462 (3/18)

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